Copper is flashing a warning sign for China's economy

"Recent movements in copper inventories highlight the lack
of significant demand for the metal, particularly in the ever
important Chinese market," analysts at BMI Research wrote in a
recent note.

The country's demand matters because copper is used to make items
as varied as electrical cables and coins, and China is the
world's largest importer.

"While the corresponding decline in Shanghai inventories largely
offset the jump in [London Metal Exchange], the shift suggests
that China's strong H116 economic data does not in fact reflect
improving demand growth," according to BMI Research.

"We expect China's refined copper imports to decelerate
over the remainder of the year, and will remain wary of any other
rapid movements in inventories."

BMI noted that in June, London Metal Exchange copper inventories
jumped by 70,000 metric tons in a few days. That pushed
futures prices out to three months above the cash price for
copper — a situation referred to as contango, which reflects an
expectation that futures prices would gradually fall to match the
expected spot price.

On Monday, benchmark copper on the London Metal Exchange traded
near a four-week low amid concerns about faltering Chinese
demand.

But the level of inventories is not the only factor that
influences prices, and data on them does not come easily.

"As such, despite the negative picture painted by copper
inventories and growing spread, we maintain our USD 4,900/tonne
forecast for 2016 and will monitor inventory trend for further
signs that the market is looser than we expected," according to
BMI Research.